FHA Seller Assistance

FHA Seller Assistance

FHA loans are mortgage loans guaranteed by a branch of the federal government called the Federal Housing Administration. In exchange for this particular government-backed insurance, mortgage lenders have to stick to the principles created by the FHA. Among the most important FHA rules involves definite constraints on just how much money a seller can donate to help a buyer in purchasing the home.

Function

Whoever sellers have come up with innovative strategies to help people buy new houses, including programs where the vendor will pay the buyers’ closing costs and down payments. The FHA, however, imposes strict limitations on the amount of assistance a vendor can offer.

Down Payment Requirement

The FHA requires each borrower to create a minimum down payment so as to qualify for your FHA-insured loan. For borrowers with a credit score above 580, the minimum down payment requirement is 3.5 percent. Below 580 the borrower must pay at least 10 percent down.

Immediate Seller Payments

The FHA will not allow the seller to pay the buyer’s down payment. On the other hand, the vendor can help arrange for a present to the buyer to pay the down payment, so long as it is not the seller who’s making that present. For example, many sellers utilize nonprofit companies who provide down payment gifts in exchange for a small charge.

Seller Contributions

As long as the seller does not make the buyer’s down payment, the seller can offer other assistance at the time of closing on the loan. The seller can pay as much as 6 percent of the purchase price in closing costs. The FHA treats any vendor obligations above 6 percent of the purchase price as a decrease in the purchase price.

Seller-Paid Costs

Assuming the seller does not pay more than 6 percent of the purchase price, the seller can pay all kinds of closure costs including discount points, origination fees, property taxes, conveyancing fees, underwriting fees and mortgage insurance premiums. Basically, the seller can pay for anything except that the buyer’s required down payment.

See related